Energy Service Company (ESCO)

What is ESCO?

ESCO is acronym of Energy Service Company. This is a company which is ready to execute energy conservation projects on performance basis. i.e. the revenue model of the ESCO is based on the energy saving performance of the equipment supplied by ESCO. This company is confident about the equipment & has domain knowledge of the applications, which makes it confident about energy saving predictions.

Why ESCO?

As the energy saving is the key concern from the environment & competitiveness perspective , lots of inventions in the technologies target energy saving as one of the major objectives .In this process , everyday , we come across new technologies which claim energy saving . However, the customer is hesitant to go for this technology due to two major reasons:

•       Higher investment cost

•       Lack of confidence on the technologies & also lack of trust with the technology vendors.

Types of ESCO:

·         Product based ESCO

These companies are manufacturers of an energy saving product. So, such product ESCO companies offer their product on ESCO model to increase the sale of their products

·         Finance based ESCO

These companies are basically financing companies having access to some funds. As they foresee a better return from ESCO business model, they want to invest in it. They normally tie up with energy auditors or manufacturers of energy saving products to confirm the energy saving before entering into the contracts

·         System ESCO

These are the companies which have domain expertise of a particular field such as HVAC, Lighting, Paper mfg., pumping.  They are aware of various ways to reduce the energy consumption in a process , which can be just a process change or intervention by multiple technologies of energy saving. So, they will not only offer a product  but will take responsibility of all the system related changes in a process.

There are two ways with which the ESCO model works.

·        Performance sharing :

In performance sharing model, the ESCO invests the money. Supplies the equipment to the end customer. During the contractual period, proves & shares the saving with the end customer in mutually decided percentage (e.g. 70:30, 60:40 etc). After the contractual period the ownership of the equipment gets transferred to the end customer. This model is suitable for the customers who are not cash rich.

·        Performance Guarantee:

In performance guarantee model, the energy user invests in the equipment based on the ESCO guarantee of energy saving per month. Once installed, the energy saving per month is found per month. If the saving is less than the amount guaranteed by ESCO, then ESCO pays the difference amount to the energy user. In contrary to this, if the saving amount is more than the guaranteed amount, then the energy user pays the difference amount to ESCO. This process continues for the contractual period. This model suits to the energy user having own funds or to the ones who have very low finance cost.

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